A new focus on Kowloon East pushed office rents there higher while Greater Central remains the world’s costliest CBD

Greater
Central rents surged to HK$137 per sq ft per month (net), a new record high

PRC co-working
operators absorbed 87% of all co-working space leased in H1, intensifies
competition for market share in the city

Improved
sentiment and expansion by the multi-brand cosmetics/personal care sector will
support growth in retail rents in Causeway Bay and Tsimshatsui in H2 by 1-3%.

HONG KONG, CHINA - Media OutReach - 11 July 2018 -Greater Central's
Grade A office rents breaking a new record andsubstantial absorption in Kowloon East were the highlights in Q2 2018,
as noted by Cushman & Wakefield, a global leader in commercial real estate services.
Meanwhile, buoyed by increased retail sales and increased tourist volumes, the improved
sentiment of the retail market led to a stable rental performance across the
board except for Central.

At 521,600 sq ft, the
territory-wide net absorption surpassed half-million sq ft for the third consecutive
quarter, reflecting an active market which supported increasing rents in all
submarkets. With the average monthly rent reaching HK$137 per sq ft, Greater
Central remains the world's costliest CBD, about 1.5 times rents in West End of
London. Greater Tsimshatsui led the pack in quarterly rental growth (up 3.2%
q-o-q) against rental increases at K11 Atelier and The Gateway where the
occupancy rate at the buildings stood above 90% as of end of Q2. Kowloon East
had an interesting combination of having the highest availability (14.1%) and
the highest level of absorption (532,900 sq ft) among all submarkets. This is
in large part due to a new focus on high quality new projects from MNCs such as
DBS Bank and VF who have leased 134,000 sq ft and 69,400 sq ft in Two Harbour
Square and Mapletree Bay Point, respectively, for consolidation and cost saving
purposes. In fact, 67% of the 3.1 million sq ft of new supply in Kowloon East
between 2017 and 2019 has been leased. The strong take-up helped push rents in Kowloon
East up 1.2% q-o-q to HK$36 per sq ft per month.

Mr John Siu, Cushman & Wakefield's Managing
Director, Hong Kong, said, "Availability is tight especially on Hong
Kong Island, which limited leasing activity in Greater Central especially where
PRC companies are concerned. The global-top rents of Greater Central continue
to drive companies to non-core areas such as Hong Kong East and we expect the
decentralization trend to continue over the next few quarters."

Demand for Grade A
office space from co-working operators remained strong, with Kr Space leasing
72,500 sq ft in One Hennessy, an upcoming Grade A development in Wanchai, and naked
Hub leasing75,400 sq ft in The
Quayside in Kwun Tong. Mr Keith
Hemshall, Cushman & Wakefield's Executive Director, Head of Office
Services, Hong Kong, commented, "The entrance of more PRC co-working
operators, who contributed to 87% of all Grade A office space leased by
co-working players (254,000 sq ft) over the first six months of this year,
intensifies the competition for market share in the city. Some leading
operators are now targeting not only start-ups but also corporate occupiers in
their premises to secure higher and more stable revenue income. As a result, we
anticipate that more leasing transactions by co-working operators in core Grade
A offices will be recorded in the coming months."

The continuous growth in retail sales in Q2 was underpinned by the
jewelry & watches sector, which witnessed 22.3% y-o-y growth from January
to May in the largest increase since 2016. A rebound in PRC tourist volumes --
up by 12.7% y-o-y from January to May which is the biggest y-o-y growth since
2014 -- and a positive market sentiment contributed to stable rental growth in
most core retail submarkets. Causeway Bay and Tsimshatsui edged up by less than
0.5% q-o-q. Mongkok recorded quarterly growth of 2.4%, while Central suffered
from a quarterly drop of 1.4%.

Vacancy shrank by a larger margin of 1.2% and 9.4%, respectively,
in Tsimshatsui and Mongkok, and remained unchanged in Central, while a seasonal
release in shopfront space in Causeway Bay caused an increase in vacancy to
2.6% in Q2. Demand was especially strong from the multi-brand cosmetics/
personal care and athleisure sectors in core locations thanks to good business
performance. The F&B sector also recorded continuous growth in business,
but F&B rentals in the core retail areas still declined in the range of
0.6-1.4% in Q2. The shortage of labor and resulting higher labor costs remained
a hindrance to expansion, especially for individual operators.

Mr Kevin Lam,
Cushman & Wakefield's Executive Director, Head of Retail Services, Hong
Kong, said, "Athleisure is still a
sector to watch, but the multi-brand cosmetics/personal care sector is even
more promising, noted by several cases of expansion in Q2, with new
international brands coming into the Hong Kong market as well. We expect more
transactions from this sector in H2 2018, which should boost rents by 1%- 3% in
H2 in Causeway Bay and Tsimshatsui, except for Central which will remain in a
downtrend."

About Cushman & Wakefield

Cushman & Wakefield is a leading global real estate
services firm that delivers exceptional value by putting ideas into action for
real estate occupiers and owners. Cushman & Wakefield is among the largest
real estate services firms with 48,000 employees in approximately 400 offices
and 70 countries. Across Greater China, there are 20 offices servicing the
local market. The company won four top awards in the Euromoney Survey 2017 in
categories of Overall, Valuation, Agency/Letting and Research in China. In 2017,
the firm had revenue of $6.9 billion across core services of property,
facilities and project management, leasing, capital markets, advisory and other
services. To learn more, visit www.cushmanwakefield.com.hk
or follow us on LinkedIn (https://www.linkedin.com/company/cushman-&-wakefield-greater-china)